Adobe Stock/Sam Antonio Photography

San Diego's new-home market bounced back recently as mortgage rates started to retreat from their peak in November.

The tight correlation between interest rates and sales shows how stretched home buyers are. But it also demonstrates the strong latent demand resulting from years of not building enough homes.

Home builders started to pull back on new construction mid-2O22, and that has helped limit some of the increase in total new-home inventory. However, the increased share of finished vacant homes will help check speculative builds.

Turmoil in the banking sector is expected to ease pressure on mortgage rates and should help in the spring buying season.

Strengths

The life sciences market remains strong despite high inflation and interest rates. The metro area has been attracting companies from Boston, New York, and San Francisco. As the sector expands, demand for lab space has been strong, pushing rents higher.

Weaknesses

Despite the passage of Senate Bill 9, San Diego continues to face significant hurdles in building enough homes to meet demand. Higher mortgage rates have curbed new construction, but lack of skilled labor, land prices, and no-growth NIMBYs are also limiting supply.

Supply

Housing starts in the fourth quarter decreased 28.5% from the same quarter the previous year, while the number of available vacant developed lots sits at 1,560, down 27.4% from the same quarter the previous year. In terms of supply/demand balance, the market area is 0.93% undersupplied.

Sales

New-home sales in the San Diego-Chula Vista-Carlsbad metropolitan area decreased 25% year over year to an annualized rate of 2,452 units in February. Over the past 12 months, 1,115 of sales were attached units and 1,337 detached. Existing-home closings for the 12-month period ending in January posted a year-over-year decline of 35.8% to an annualized rate of 30,675 units. Of those, 10,180 were attached units and 18,779 detached.

Prices

The average list price for a new detached home in the region increased 2.5% from 2022 to $1,199,950 in March, while the average list price for a new attached home increased 5.9% over the same period to $727,448. Homes priced over $950,000 experienced the most closing activity over the past year.

Economy

TotaI non-farm employment in the metropolitan statistical area increased 4.2% from the same period last year to 1,566,400 payrolls in January. There were approximately 8,400 more jobs in January compared with the previous month. The local unemployment rate remained flat at 3.3% in January. The jobless rate is lower than it was one year ago when it stood at 4.8%. Zonda forecasts the region's unemployment rate will finish the year at 3.3%.

Community

The current population for the area is approximately 3,334,170 people. Population in the area is projected to increase by 0.4% in 2023. There are approximately 1,197,350 households in the region, which is up 0.5% year over year. Forecasts show that current household formation is expected to increase by an annual growth rate of 1.3% for 2027. Incomes increased by 9.4% from the previous year to $105,766.

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